Category Archives: Contracts

Avoid Disaster: Have Your Contracts Reviewed (guest post)

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Today, we have a guest post by on of my comrades in crime (that is, a fellow construction law blogger), Chris Hill.  Here’s his official bio:  Christopher G. Hill, LEED AP is Virginia Supreme Court certified mediator, construction lawyer and owner of the Richmond, VA firm, The Law Office of Christopher G. Hill, PC.  Chris authors the Construction Law Musings blog where he discusses legal and policy issues relevant to construction professionals.  His practice concentrates on mechanic’s liens, contract review and consulting, occupational safety issues (VOSH and OSHA), and risk management for construction professionals.

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Chris Hill, AttorneyFirst of all, thanks again to Melissa for letting me post at her fine blog.  She’s one of the more knowledgeable and cool Tarheels I know (and this is coming from a Blue Devil!).  Now, on with the show.

As those who read my Construction Law Musings blog on a regular basis know, I am a huge proponent of getting a knowledgeable attorney involved in your construction contracting business early on.  While we construction lawyers are generally seen as last resorts, we can actually be helpful and (dare I even say it?) save you money.  How, you may ask, can paying a construction lawyer that ostensibly is only there when you have a claim actually save you money?  Well, as you may have gathered by the title of this guest post, I’m going to tell you.

Two words:  Disaster avoidance.

Litigation is a money, time and emotion draining process for those that don’t have the particular odd propensity of the litigator that makes them actually enjoy trials.  Litigation takes money from the bottom line because no business this side of a cigarette or pharmaceutical company can do business planning to sue or be sued.  For that reason, litigation cannot be treated as overhead and even in the case where you could get a judgment for any fees that you may spend, you are still out the cash and even then may never recover on the judgment.  A contractor cannot make money through litigation (at least in my experience).

Even in the case where you are “right” and “should never lose” there is risk in court.  Juries, arbitrators and judges sometimes go the other way.  These are humans.  They are fallible and in many ways unpredictable.  Litigation is (and should be) a last resort.

The best way to avoid this result is a good contract and good advice from those of us who have seen the results of litigation on numerous occasions and that therefore know how to avoid it.  Everything from the proper claim and notice procedures to a well scoped project are necessities up front.  Aside from the “common sense” issues that you as a business person will see coming, an attorney can see the picky “traps” that are there and are counterintuitive.  For instance, Virginia, unlike many other states, allows the waiver of mechanic’s lien rights in a contract.  You wouldn’t want to miss this thinking that you “knew” that such a clause was unenforceable.  [Editor’s Note: By comparison, in NC, such a waiver in advance is against public policy].

Much like your bi-annual visits to the dentist (yes, I compared my profession to one that is almost as popular), the relatively small expense of early review of your contracts and business practices can go a long way toward avoiding surprises and disastrous expenses later.  In short, and as you learned in kindergarten, doing it right the first time is always easier than fixing the problem later.

My final advice:  Add a lawyer to your team of advisers, you’ll be glad you did.

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Thanks, Chris, for another fine post.  And I completely agree:  the number of hours spent on claims will vastly supersede the small cost for most companies/Firms to properly prepare and vet their contracts and proposals.  Chris and I welcome your comments, questions, and thoughts!

 

Adding an “Additional Insured” in the Professional Services Agreement: an exercise in futility! (law note)

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As an architect or engineer,  you may be asked to sign a contract that has a requirement of adding the Owner (or Contractor, in a design-build project) to your own insurance as an “additional insured”.  This is usually a fall out of the fact that the Owner is treating you like a contractor and using “stock” contract language.  It is not appropriate, nor sometimes even possible, to add the Owner to your professional liability policy.

This is beacuse professional liability insurance only provides coverage for “professional services”.  That is, if it is even possible to buy such coverage, it won’t work to avoid any risks the Owner is seeking to avoid, because the Owner is not providing licensed architectural or engineering services on the Project.

In fact, because of the way professional liability policies are generally written, naming the project Owner as an additional insured essentially voids any coverage for the owner for your Firm’s design errors & omissions.

What should you do with a stubborn Owner who insists he wants to be an additional insured under your E&O policy?  Explain the facts to him, and point out he is risking voiding coverage all together.  Tell him to call me, or point out this post to him.  Also, several insurance brokers, agents, and companies have simple one or two page information sheets that you can provide to the Owner to help with his education.

Remember, having an “Additional Insured” in an Errors & Omissions policy is a true exercise in futility.  It may not be what the Owner wants to hear, but such is life!not want to hear

 

Question time:  have you ever been asked to add an Owner to your E&O insurance?  How did you handle it?  Share in the comments section, below. 

And if you haven’t already, be sure to download your free white paper on the 7 Critical Mistakes that Architects & Engineers make– it’s in the box on the top right hand side of the blog.

 

Photo credit.

Consequential Damages: What are they? Should I waive them? (law note)

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A client asked me about a contract he was asked to sign in which consequential damages were being waived.  Consequential damages are those things that cost money which arise indirectly out of a failure of a party on a construction project.   dollar signsThey can include:

  • loss of use
  • loss of rent
  • loss of profit
  • loss of bonding capacity
  • extended overhead
  • extended equipment rental fees
  • increased material costs
  • interest

Note that this is not an exhaustive list, and other consequential damages may be applicable depending on the project.

Often, like my client, you may be asked to waive consequential damages.  This is a double edged sword.  If the waiver is mutual (something on which you should insist), then the provision may save you money in the event your design or services delay the project.  The Owner has agreed that it cannot seek to recover indirect, consequential damages.  On the other hand, if you are the one suing the Owner, it means that there may be costs that you cannot be compensated for if a project goes awry.

The standard industry contracts all have at least some waiver of consequential damages, as noted in this chart.

waiver in form contractsBottom line: waiver of consequentials can be a good thing or a bad thing, but you will not know which when you are signing on the dotted line.

Just make sure that if there is a waiver, that it is mutual on both sides.  Good luck, and “be safe out there”

Your turn.  Have you ever waived your right to consequentials?  Horror story to share about paying someone else’s costs?  Share in the comment section.

Dollar Photo (c) sivlen001.
Chart (c) Melissa Brumback Creative Commons License

Something to Hang Your Hat On… (Limitation of Liability clauses) (law note)

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hat rackIn the past on this blog, I have pointed out the benefits of Limitations of Liability clauses.  These are the clauses that state that the most damages that your Firm can be responsible for is capped at a certain dollar amount or your contracted fee.

Do you have a limitations of liability clause in your professional services contract?  You should.  Best practice would be to have such a clause that limits damages against you to a set amount.  For example:

Engineer’s liability to Client for any and all injuries, claims, losses, expenses, damages or claim expenses arising out of this agreement, from any cause or causes, shall not exceed the total amount of $50,000 or the amount of Engineer’s fee, whichever is greater.

While best practice is to have such a provision, it is not always enforced.  In a case arising out of the Western District of North Carolina, the court noted that such provisions will not be enforced where the result would be unconscionable and “elicit a profound sense of injustice.” See  Performance Sales & Mktg., LLC v. Lowe’s Companies, Inc.,2010 WL 2294323 (W.D.N.C. June 4, 2010).

What does this mean in practical terms?  It means that you should endeavor to include a limitation of liability clause, but don’t necessarily think that if you have that you’ve capped your risk.  A court can always decide that the clause is unconscionable.  But, such a limitation is one more thing to “hang your hat on” if and when you find yourself staring down the barrel of litigation*.

* If, however, you are facing litigation, make sure you sign up for regular blog updates.  Starting next week, I am writing a new series on the anatomy of a construction lawsuit, so stick around! 

 

Photo:  (c) BabbNet via CC.

When is a Construction Project truly “Complete”? That depends. (law note)

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Crossing the finish line

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Long-time readers of the blog may remember my earlier post on substantial completion.  However, in looking over my blog stats to see what search terms lead people here, it looks like this is hot topic.  The blog searches came in two general categories:

1.  Those searching strictly for a definition of substantial completion.  Some examples:

  • What does “substantial completion” mean?
  • when does a building achieve substantial completion
  • contracts “substantial completion”
  • substantial completion undefined
  • when is a project substantially complete

For those of you who want a definition, I refer you to my earlier post.  Essentially, however, the term is not always defined, which can be part of the problem.  If you are using AIA contract documents, there is a built in description that defines it as when the Owner can occupy or use the building.  Even the AIA definition, however does not state that there must be a permanent or temporary certificate of occupancy before substantial completion can occur.  While some might presume that a certificate of occupany is required, better practice would be to include language that specifically states that substantial completion also requires that the Contractor deliver to the Owner a certificate of occupany. This leads to the second major category of blog search terms related to substantial completion:

2.  Those looking to compare substantial completion with certificates of occupancy.  Examples include:

  • certificate of substantial completion vs certificate of occupancy
  • substantial completion or final completion
  • completion vs substantial completion
  • construction certificate of substantial completion

This can be a confusing distinction, but in reality the two are generally unrelated to each other [unless you state that a Certificate of Occupancy is part of the Substantial Completion process.] A Certificate of Occupancy is issued by the Building Department official when the building fulfills all requirements to be safely occupied.  In contrast, a Certificate of Substantial Completion is requested the contractor and granted by the architect.  Sometimes things that need to be completed before the architect can issue a certificate of substantial completion do not prevent the building of receiving Certificate of Occupancy.  [Unless, that is, you are in an odd jurisdiction, where a Building Inspector will demand a Certificate of Substantial Completion before issuing a Certificate of Occupancy.] A final note:  for those who were wondering about Final Completion, this occurs after the final inspection; i.e., after the architect verifies that the punch list is complete and all contract terms have been met.   [The punch list work can be conducted while the Owner has beneficial use of the building.]  At Final Completion, the final Certificate of Payment is issued. Confused yet? Drop me a line.  And, share below:  what has been your experience with certificates of occupancy and whether or not they relate to substantial completion?

Photo (c) Euromotorworks.